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3 Basic Material Stocks to Buy for Safety

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The market rally last week was much needed to soothe investors’ nerves as broader indexes remain well off their highs. The S&P 500 is still down around -17% YTD, with the Nasdaq still down -28%. But both are looking far better at the moment compared to where they were at the end of the third quarter.

As broader markets and the economy alike are not out of the woods yet, investors may want to consider adding positions in stocks from sectors that have been able to fight inflation. It is worth revisiting the Basic Materials sector as many of these stocks are having solid performances this year.

Let’s take a look at three stocks that may continue providing a defensive hedge if the recent rally fades.

Bunge Limited (BG - Free Report)

Bunge is an integrated agribusiness and food company that operates on a global scale. The company is broken down into four segments: Agribusiness, Refined and Specialty Oils, Milling, and Sugar and Bioenergy. Bunge’s business spans the farm-to-consumer food chain processing, moving, distributing, and marketing of food on five continents.

BG is up a solid +6% YTD largely outperforming the S&P 500 and the Agriculture/Products Markets -4%. Bunge Limited has started to establish itself as an industry leader over the last 3 years up +82% to beat the benchmark and its Zacks Subindustry’s +47%.

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Image Source: Zacks Investment Research

Trading around $99 a share and 22% from its 52-week highs BG has a forward P/E of 7.1X. This is near the industry average of 6.9X. Even better, BG stock trades nicely below its decade-high of 23.5X and the median of 12.5X.

Year over year, BG earnings are expected to rise 7% this year to $13.89 per share. FY23 earnings are expected to decline -15% following an impressive 2022. But earnings estimates are up to $11.75 a share compared to $11.04 per share 90 days ago. Sales are expected to climb 17% this year and slightly drop -3% in FY23 to $66.96 billion. BG crushed Q3 expectations by 41% in October with EPS of $3.45 and it beat sales expectations by 7%.

Bunge Limited also offers investors a 2.51% annual dividend yield at $2.50 per share and the Average Zacks Price Target suggests 25% upside from current levels.

Clearwater Paper (CLW - Free Report)

Clearwater Paper has been a consistent name on the Zacks Rank #1 (Strong Buy) list. CLW made the Zacks #1 Rank additions earlier this month and it may be a good time to add positions in the essential raw material-producing company.

The company’s specialty is manufacturing quality paperboard that is essential for construction and packaging purposes. CLW’s earnings estimate revisions for this year and FY23 are up significantly.

CLW is still up +1% YTD to outperform the S&P 500 and the Paper & Paper Products Markets -14%. Even better, CLW stock has climbed +783% since going public in 2008. This also outperformed the benchmark and crushed its Zack Subindustry’s +68%.

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Image Source: Zacks Investment Research

CLW trades around $37 a share and roughly 20% from its highs. At current levels, the stock trades at 8.4X forward earnings. This is near the industry average and well below its P/E high of 55X since the company went public. CLW also trades nicely below its historic median of 14X.

CLW earnings are now projected to climb a stellar 331% to $4.44 a share in 2022, based on Zacks estimates, up from $1.03 in 2021. FY23 earnings are expected to decline -18% after a tough-to-follow year with the company illustrating pricing power amid rising inflation for its raw material production.

Earnings estimates for FY23 have climbed to $3.64 compared to $2.86 per share 90 days ago. Sales are projected to climb 18% this year and rise another 2% in FY23 to $2.14 billion. CLW also blasted Q3 expectations in October by 20% with EPS of $1.83.

While CLW doesn’t offer a dividend at the moment the Average Zacks Price Target offers 29% upside from current levels.

CalMaine Foods (CALM - Free Report)

Another stock sporting a Zacks Rank #1 (Strong Buy) in correlation with rising earnings estimates revisions is CalMaine Foods (CALM - Free Report) . CalMain Foods is the largest producer and distributor of fresh shell eggs in the U.S. and its Agriculture-Products Industry is currently in the top 13% of over 250 Zacks Industries.

CALM is up an outstanding +46% YTD with the company enjoying the pricing power of commodities during high inflation. Even more astonishing, over the last 20 years, CALM is up +7,351% to beat the benchmark and crush its Zacks Subindustry’s +387%.

Zacks Investment Research
Image Source: Zacks Investment Research

Trading around $54 a share and 14% from its 52-week highs CALM has a forward P/E of 6.6X. This is on par with the industry average. Despite CALM’s stellar performance this year the stock trades nicely below its decade-long high of 258.9X and the median of 29.16X.  

CALM earnings are now projected to climb 198% at $8.10 a share in 2022, based on Zacks estimates. This is an outstanding jump from EPS of $2.72 in fiscal 2022. FY24 earnings are expected to decline -61% after what is expected to be an impressive fiscal 2023.

With that being said, earnings estimates for FY24 have gone up to $3.15 compared to $2.24 per share 90 days ago. Fiscal 2023 sales are expected to be up to $1.79 billion from $477.49 million in fiscal 2022. CALM most recently beat its fiscal Q1 earnings expectations in September by 7% at $2.57 per share.

CALM offers investors a lofty 6.36% annual dividend yield at $3.41 per share and the Average Zacks Price Target suggests 14% upside from current levels.

Bottom Line

Investors will not want to forget that many stocks in the Basic Materials sector are having strong performances this year despite the struggles in the broader market and economy. These companies have pricing power amid rising inflation as commodities and raw materials have excelled across the supply and demand chain.

Adding to positions before another possible market downturn could help investors stay ahead of the broader market and harness the positive earnings estimate revisions that could propel these stocks higher.


See More Zacks Research for These Tickers


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Cal-Maine Foods, Inc. (CALM) - free report >>

Bunge Global SA (BG) - free report >>

Clearwater Paper Corporation (CLW) - free report >>

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